Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. LRAS Aggregate Supply Aggregate Demand Aggregate Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level. Price Level

Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. LRAS Aggregate Supply Aggregate Demand Aggregate Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level. Price Level

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter23: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 3PA

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The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 160 150 A 140 130 B 120 110 AD 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) As the price level falls, the cost of borrowing money will causing the quantity of output demanded to This phenomenon is known as the effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore and the number of foreign products purchased by domestic consumers and firms (imports) will Net exports will therefore causing the quantity of domestic output demanded to . This phenomenon…
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In 2013, Prussia's aggregate demand curve was determined by the equation M + 1-4% A change in aggregate demand means that in 2014, Prussia's aggregate demand curve was determined by the equation Using this information, draw Prussia's old and new dynamic aggregate demand curves on the graph Which of the factors could have resulted in the change irn aggregate demand seen between 2013 and 2014? 13 AD 2013 an improvement in technology O an increase in imports O higher consumer confidence O a decrease in oil prices 12 AD 2014 10 8 5 4 3 2 4 -3 2 1 0 1 2 3 4 5 6 78 9 10 Real GDP growth rate
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The curve of Aggregate Demand or aggregate demand has a negative slope. Explain why the aggregate demand curve can have a negative slope.
8. Do the following events have their initial impact on aggregate demand, long run aggregate supply, or short run aggregate supply? Do the curves shift to the right or to the left? Show, using a graph for each question. a. The new government in Canada increases income taxes. AD/AS/LRAS: Equilibrium Price: Equilibrium Quantity: b. There has been an increase in investment in postsecondary education in Canada AD/AS/LRAS: Equilibrium Price: Equilibrium Quantity: c. Canada experiences downward pressure on nominal wages. AD/AS/LRAS: Equilibrium Price:, Equilibrium Quantity: 9 6
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The graph shows the economy in long-run equilibrium. Then the world economy expands and the demand for U.S.-produced goods increases. Draw a curve that shows: 1) the effect of increased demand for U.S.-produced goods. Label it 1. 2) the effect of a rising money wage rate that returns the economy to full employment. Label it 2. Draw a point at the new long-run equilibrium. An economy is in a long-run equilibrium. How does the economy return to a full-employment equilibrium following an increase in aggregate demand? An increase in aggregate demand creates rise in the money wage rate decreases. returns the economy to a full-employment equilibrium. and OA. a positive; short-run aggregate supply O B. a recessionary; short-run aggregate supply OC. an inflationary; the quantity of real GDP demanded OD. an inflationary; short-run aggregate supply and long-run aggregate supply gap. A 140- 130- 120- 110- 100- 90- 80+ Price level (GDP deflator, 2012-100) 18.0 (18,91.3) LAS 19.0 20.0 21.0 Real GDP…